US should weigh trust for GM, Chrysler stake-panel

By IBT Staff Reporter On 09/09/09 AT 4:18 PM

WASHINGTON - The U.S. government should consider a trust for its stake in General Motors Co and Chrysler to ensure independent oversight and facilitate an exit strategy, a congressional watchdog found on Wednesday.

A report by the Congressional Oversight Panel for the Troubled Asset Relief Program (TARP) also supported prevailing assumptions that taxpayers will not likely recoup their nearly $65 billion investment in the auto companies. The payout included bankruptcy financing at both automakers this year.

The ultimate recovery on this investment will depend on what those companies are worth, said Elizabeth Warren, a Harvard Law School professor who chairs the TARP panel that issues monthly reports on the $700 billion bailout program.

TARP funds were first extended to the financial sector and then to autos.

The government holds a 60 percent stake in GM and 8 percent of Chrysler. Since January, the Treasury Department, through the government's autos task force, has invested more than $50 billion in GM and $14 billion in Chrysler.

The Treasury Department has said it plans to sell the shares in initial public offerings as soon as 2010 for GM and later for Chrysler. The government, which has appointed several board members at both companies, has promised to stay out of management affairs.

But the panel noted that the Treasury Department may make decisions that affect industry. Warren told Reuters Financial Television a trust would be preferable to protect the investment from any political interference and effectively manage an exit.

No matter how much Treasury says, 'We're not going to get involved,' there's going to be a question on when to sell those shares. That's an investment decision. Leave it to investment professionals, Warren said.

Treasury officials said they are committed to managing the investment in a commercial manner and a trust may violate federal law in the case of carmakers.

It's unclear that the recommendation would be an improvement, they said.

The report also said there were significant obstacles to GM and Chrysler achieving the level of profitability that would permit return of the entire taxpayer investment.

It is also unclear whether GM and Chrysler will have to borrow from private markets, and analysts have said their performance would have to exceed levels not seen in years.

The automotive sector in the United States is risky and these companies have a legacy of failure, the report said about repayment. Treasury's best estimates are that some significant portion of those funds will never be recovered.

GM said in statement that it was confident it would repay the government because it has reduced debt, and has a stronger balance sheet and a competitive product mix.

Chrysler had no comment on the findings.

A proposal by Sens. Bob Corker, a Republican, and Mark Warner, a Democrat, would require a trust for any TARP-ownership stake exceeding 20 percent.

Shares related to the $80 billion U.S. bailout of American International Group (AIG.N) in 2008 have been placed in trust. The report was posted at cop.senate.gov/. (Reporting by John Crawley; Editing by Toni Reinhold)